Affordable private rent
Last year’s Housing White Paper and the accompanying build to rent consultation set out the government’s proposals for promoting and expanding the build to rent sector. One of the more notable ideas in both consultations is the creation of a new type of affordable housing that streamlines delivery and encourages development of more build to rent schemes.
The collated responses to the build to rent consultation were published in August 2017 and indicated a broad level of support from the sector. New planning policy guidance (currently anticipated for Spring) will set out what government wants to do with build to rent as a sector and this will complement the supplementary guidance issued last year by the Mayor of London.
"I want to start a conversation with other people in the sector, about thinking differently about affordable private rent and the opportunities it could create for the local authority, the private sector providers and, perhaps most importantly, the customer," says Suzanne Benson, Real Estate Partner at Trowers & Hamlins.
"The current proposal is that an affordable private rent unit will be available to rent at a 20% discount to open-market rent and that, as a new affordable tenure, affordable private rent will satisfy the affordable element of a scheme’s planning permission. The proposed standard planning requirement is for affordable private rent to comprise 20% of an overall build to rent development."
"It is particularly interesting to think how the private sector can develop affordable private rent to make a planning application, a land bid or a joint venture proposal more specific and appealing," describes Benson. "If the private sector can find a way to make affordable private rent work hard for them, rather than it just being there for planning reasons, then that could have a great impact and provide an edge over competitors." Discussion around affordable private rent to date has tended to focus on replicating the role of a housing association in providing affordable social housing – this may not work in many build to rent schemes and it will be difficult for the private sector to replicate the regulated structure housing associations operate in.
Andy Barnard, Real Estate Partner at Trowers & Hamlins added "From the local authority’s point of view, affordable private rent is designed to encourage growth and speed up the processing of build to rent planning applications, accelerating the delivery of much needed new homes."
"From an investor’s perspective the main appeal of affordable private rent is the element of control it introduces by removing the need to work with a third party housing association or to make a payment in lieu. The downside is that there’s a risk that the guidance allowing for affordable private rent could become inflexible and as a result fails to take into account the challenges and distinctions of local markets."
According to Benson affordable private rent could also potentially be used as an opportunity to create more routes into home ownership for people unable to access mortgages. "Lots of people talk to me about rent to buy properties where a reduced rent is paid with an incentive to buy the property after five years. However this model fails to take into account the fact that the average timeline for people moving house, particularly in the early part of their lives, is five to seven years. This creates an inherent flaw in most rent to buy products as the tenant is likely to have different housing needs at the end of the saving period."
"My thinking is that with affordable private rent you have a new affordable tenure, attracting young people just starting to pay rent who are one of the main groups being priced out of home ownership," says Benson.
"The 20% reduction in rent built into affordable private rent potentially creates a savings opportunity for this group which, particularly when linked with other schemes such as the Lifetime ISA, could provide the scope to save for a deposit over the term of the affordable private rent tenancy. Affordable private rent tenancies could be offered as an opportunity to enable customers to prepare for homeownership. By linking the ultimate purchase to other new homes for sale in the area, either with the same provider or otherwise, this could create a new type of rent to purchase arrangement. This would assist first time buyers on a rolling basis, as well as encouraging talent retention by providing a longer term housing solution."
Barnard agrees "The affordable housing sector nowadays is broader than just those in need of social tenancies and there may be logic in focusing on particular groups in housing need when assessing build to rent schemes. The needs of key workers or older people, for example, are relatively easy for the private sector to assess objectively and may enable providers to target specific areas of housing need." This approach may help to address one of the biggest challenges of affordable private rent – the identification of potential tenants and the evidence base required to satisfy the local authority that affordable private rent is being used to address the needs of its target market.
"There are well trodden paths for dealing with eligibility and nominations between housing associations and local authorities, but these do not necessarily fit with the build to rent model," adds Barnard. "Assets in single management is a key feature of the development of build to rent and is a major driver for institutionalised investment in the sector." Introducing affordable private rent is specifically aimed at removing the requirement for a third party provider and this mustn’t fall down because local authorities are not convinced by or can’t resource new mechanisms dealing with eligibility.
Barnard and Benson conclude that "The key for success here will be for the build to rent sector to convince local authorities that it can manage an affordable product effectively in the long term without being a drain on limited planning and housing department resources."